Latin Americans See Barriers to Entrepreneurship

by Steve Crabtree and Jesus Rios

Two-thirds do not think governments make paperwork, permits easy enough

WASHINGTON, D.C. -- Worldwide, residents of Latin America are the most likely to see government as a liability rather than as an asset to starting a business. Across 20 Latin American countries Gallup surveyed between 2008 and 2010, a median of 66% of residents say their governments do not make permits and paperwork easy enough for those who want to start a business. Residents in sub-Saharan African countries are next most likely to see their governments this way: a median of 50% say this.

Latin American populations also tend to be less likely than those in other regions to say business owners in their countries can trust the government to allow businesses to make a lot of money. The median "no" proportion across the Latin American countries surveyed is 50% -- somewhat higher than the 45% median for Europe and the 41% for former Soviet republics now in the Commonwealth of Independent States (CIS) and former CIS member Georgia.

In Latin America, the relatively high "no" percentages may reflect a broad set of issues that the public may perceive as tension between government and private businesses, including the wave of company nationalizations, tougher labor regulations, and even business confiscations in recent years.

Perceptions of government barriers to entrepreneurship are widespread in most Latin American countries -- including some of the region's largest economies. At the top of the list is Argentina, which has struggled to attract foreign investment -- a difficulty some analysts attribute to the government's unpredictability and intrusiveness in the markets. Even in Brazil -- which has seen steady growth and is often cited as one of the emerging economies that will drive worldwide growth in this century -- 7 in 10 residents say the government does not make permits and paperwork easy enough for prospective business owners, and a majority (56%) do not trust the government to let businesses make a lot of money.

Implications

Many entrepreneurs simply avoid formally registering a business when the barriers and costs associated with doing so are high, which leads to a great deal of unofficial economic activity in some countries. The International Labor Organization has estimated that more than 70% of workers in developing countries have jobs outside the formal sector.

Economists note that this can create a situation that limits the potential of entrepreneurship as a source of good jobs and social mobility. Low-income business owners stay outside the formal sector because they can't afford to comply with cumbersome government regulations or pay excessive taxes. However, informal businesses tend to remain small and often fail because they lack access to financial institutions, government services, and formal customers. Throughout Latin America, clearing the path for low-income entrepreneurs to join the formal economy may boost their odds of success, thereby accelerating economic development and making growth less dependent on foreign investment.

Results are based on telephone and face-to-face interviews with approximately 1,000 adults, aged 15 and older, in 120 countries, 2,000 adults in Russia, 6,000 adults in India, 4,200 adults in China, 750 adults in Hong Kong, and 500 adults in Cyprus, Estonia, Haiti, Ireland, Latvia, Lithuania, Slovenia, and Trinidad and Tobago. All surveys were conducted in 2008, 2009, or 2010. For results based on the total samples of national adults, one can say with 95% confidence that the maximum margin of sampling error in 2009 ranged from a low of ±1.7 percentage points in India to a high of ±5.7 percentage points in countries where 500 adults were interviewed. The margin of error reflects the influence of data weighting. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

In terms of attitudes associated with entrepreneurship, recent Flash Eurobarometer surveys suggest the U.S. seems to have an advantage over the European Union. Americans are more likely than EU or Chinese respondents to think of themselves as risk takers, competitive, and able to accomplish difficult tasks.

Millions of young people worldwide would leave their countries if they had the chance, regardless of whether they have jobs at home. Everywhere except the Middle East and North Africa, adults under 30 who are employed, underemployed, or not in the workforce are equally likely to desire to migrate.